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The release of the latest S&P/Case-Shiller Home Prices Indices turned out to be anticlimatic as rising mortgage rates spooked the market a bit, causing home price appreciation to subside a bit in key markets.

On the other hand, markets once considered 'struggling' saw their prices soar.

The June S&P Case-Shiller report, while still impressive, fell slightly showing a 12.1% gain in home prices year-over-year. That is still comparable to the 12.2% annual home price gain recorded in May — the largest gain recorded since March 2006.

“Case-Shiller put up some big numbers in June, but more current data shows the pace of monthly home value appreciation slowed in both June and July, likely as a result of mortgage rate increases," said Zillow (Z) Chief Economist Dr. Stan Humphries. "We expect even the Case-Shiller index will begin to show this trend when its July data finally comes out in September, but it will be more muted since the index is looking at a three-month average."

There are two main drivers in the housing industry right now: consumer demand and interest rates, said Quicken Loans chief economist Bob Walters. "Despite rising rates and higher home prices, consumers continue to buy. Today's 7.1% increase in the second quarter suggests the housing market is improving, supporting the U.S. economic recovery," he explained.

But what really stood out to some observers is how once outperforming cities are starting to see home prices subside.

"What we are seeing is that the cities that are spiking the most are not Washington D.C., which is really interesting,” said Anthony Sanders, professor of finance in the school of management at George Mason University. Sanders implied that once thriving markets have since leveled off.

On the other hand, markets once doing far worse are starting to see substantial improvement.

Atlanta saw the most home price growth, up 3.4% in June, with Chicago close behind with a 3.32% gain. Las Vegas and San Diego followed with 2.8% and 2.79% monthly gains, respectively. Sanders runs his own blog in which he goes deeper into the data. Washington D.C. grew at a more mild 1%.

The emergence of once distressed markets became clear as cities like Las Vegas saw rapid price appreciation.

“In terms of annual rates of change, San Francisco lost its leadership position with Las Vegas showing the highest post-recession gain of 24.9%,” said David Blitzer, chairman of the index committee at S&P Dow Jones Indices.

According to Sanders, this is an indication that speculators are starting to pull out of the West Coast cities and move into markets that have yet to reach such high home prices. "It has to be investors driving this up," he said. "This is an unusual switch."

When looking further at how far Atlanta, the monthly leader, has come, it’s helpful to look at its numbers three years ago. Atlanta was down 0.52% three years ago and is now up 3.40%. This compares to San Francisco, which was up 21.37% back in 2010, and is now up only 2.73%.

We know its not residential mortgages that are driving the recovery, said Sanders, it’s really more about where investors are re-parking their money.

Sterne Agee Chief Economist Lindsey Piegza believes it may imply that investors are “getting out ahead of the shift in consumer mentality.” With home prices on the rise, more and more consumers are unable to afford homeownership, especially in markets where prices have already shot up significantly, and may be turning to multifamily opportunities.

"The housing market is still inching along, but we’re just not seeing that fast robust recovery that we’d hoped for," said Piegza. Still, Piegza said the current trend is arguably safer and suggests more long-term sustainability.

Megan Hopkins is a Reporter for HousingWire. She has worked as a reporter and copyeditor for publications such as the Baylor Lariat, Focus Magazine, WACOAN Magazine and AVID Golfer.

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